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Starting a Consignment Business

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Starting a Consignment Business

Published: March 16, 2010

Are you thinking about starting a resale consignment shop? Read on for a quick overview of the consignment business and steps to take to start your own shop.

What Is a Consignment Business?

Consignment is a resale business involving three parties - the owner of goods or items (consignor), the seller (consignee), and the buyer (customer). Typically, a consignee owns a resale shop that sells items for multiple consignors. When a buyer purchases an item in the shop, both the consignee and the consignor receive a portion of the profit.

Consignment Items. The most common consignment items include clothing, art, and antiques. However, many consignment shops sell cars, computers, electronics, crafts, musical instruments, and toys, as well. Consignment items can be old or new.

Ownership. As the consignee, you do not have legal ownership the items in your shop.

Instead, the consignor retains ownership of an item until you make the sale. When an item sells, you earn a commission on the sale and the consignor keeps the rest of the payment. If you do not sell the item by the agreed sales deadline, you must return it to the consignor or negotiate a new contract with the consignor.

Other Shops. People often confuse consignment businesses with charity, thrift, and pawnshops. The key difference lies in who owns the item. In charity and thrift shops, the consignor hands over all ownership rights to the consignee as a charitable donation. In pawnshops, the consignor surrenders all rights to the item, but can reclaim it if he or she purchases it back at the new price determined by the pawnshop.

Start-up costs for consignment businesses are often less than that of thrift and pawnshops. As the consignee, you do not own the items you sell so there is no overhead for purchasing inventory. In addition, you are not obligated to sell the items in your shop. If you cannot find buyers, your agreement with the consignor allows you to return the item.

How Do I Start a Consignment Business?

Starting a consignment business is similar to starting any business. Follow these 7 steps to start:

1. Do Your Research. Research should be the first task on every business owne;s list. Even an online search can give you information on the consignment market and its profitability in your area. Ask yourself: what am I interested in? Understanding your interests focuses your research. Visit Business.gov Business Data and Statistics for free data on consumers, industries, and economics.


2. Write a Business Plan. After you research, start writing a business plan. Your business plan includes your busines-s mission, goals, operations plan and projected financials.

3. Choose a Location. If you choose to open a shop, you need to find a location for your business. An online consignment shop like EBay is another option. If you are interested in starting an online consignment shop, follow the steps on how to start an online business on Business.gov.

4. Locate Inventory. You can start to gather inventory by asking friends and family for consignment items. Joining local and national consignment organizations like the National Association of Resale and Thrift Shops* can also connect you with potential consignors.

5. Draft a Consignment Agreement Template. A consignment agreement substantiates your relationship with the consignor. This agreement should specify pricing and insurance obligations, payment details, and the consignment period. You can find free templates online or consult a lawyer to help draft a contract.

6. Register Your Business. You must register your consignment shop like any other business. The registration process includes registering for a business name, licenses and permits, and taxes. Learn how to register your business at Business.gov.


7. Market and Advertise. Advertise your business online and through traditional media. Learn more about how to market your business at Business.gov.

Which Laws Should I Be Aware of?

If you plan to start a consignment shop, make sure you understand the Uniform Commercial Code (UCC). The UCC governs commercial transactions in each state. This set of uniform business laws also protects consignors from consignment abuse and bankruptcy. According to the UCC, consignors have the right to (1) file the UCC-1 form, (2) ask the consignee to post a store sign indicating consignment, and (3) prove to creditors that items are consigned. For example, the UCC-1 form gives the consignors legal claim over their property. In many states, they become a secured creditor when the consignment becomes bankrupt.

Consignment laws do vary between states. Check with your state government's business agency to see which laws apply to you.

Related Resources

*Links to a non-government website

About the Author:

Comments:

The 'projected financials' of a business plan include the costs of doing business, including the cost of software, hardware and IT support. There are at least 40 programs for consignment. The 5 and 10-year costs are enormously different: Some charge annual service fees. Others don't. Some claim the annual fee is optional but deny service and/or software updates if the fee isn't paid. Those that do have service fees increase them regularly. Some vendors claim that their software is worth $1,000 and more when most stores can keep track of and process everything for a fraction of that. It makes sense to require a written full disclosure of all possible fees, optional or not, prior to purchase.
Another important aspect to starting a consignment store is finding retail management software (Point of Sale or POS) which can help you keep track of everything. If you don't use a good POS, then you'll have to do everything manually and that will take a lot of time. But apps such as ours (PayGo at paygopos.com) can automate your entire business process for you. Think about it. You'll have to setup a WAY to do business and a POS program can help you setup and track how you do business. A POS should be able to track customers, consignors, consignment AND non-consignment inventory, sales, orders, gift receipts and gift cards, returns, price tag and receipt printing and so much more. Check out our site if you need more help getting your consignment store up and running.
Regarding item 7: marketing and advertising your consignment business. A good place to start would be Resld.com at http://resld.com - a marketplace for consignment and resale stores where you can market your store and showcase your best items to customers from all over United States.

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